The governance of corporate groups

We propose a sociological approach of the governance of corporate groups. Corporate groups are sets of legally separate firms owned by the same decision maker. These last years, enterprises have increasingly chosen to organize and conduct their business operations in the form of a cluster of various separate corporations, rather than as a single corporate entity. Corporate groups dominate the economies of many developed countries, they are worth considerable attention. But since component firms are legally separate and corporate groups have not clear legal status in a lot of countries, their study is difficult. Corporate groups can be invisible. Moreover, the literature is highly focused on the idea of the corporation as an autonomous unit. The aim of this paper is to further our understanding of this organizational structure. How to characterize the link between parent company and subsidiary ? What is the nature of corporate groups ? Why does this form emerge ? “Understanding business groups is a special case of a central problem of modern sociology : what determines the scope of relationship in which individuals and larger social units engage.” (Granovetter, 2005)In corporation law, corporate groups can be analysed as a model living under a typical separation between ownership and control. But this perspective is not satisfactory. Unexpectedly, subsidiaires can be considered as integrated units or, conversely, can be more autonomous. Our aim is to show the complexity of this organizational form. We propose to consider corporate groups as hybrid structures where there is an unification rather than a separation of ownership and control. The parent corporation appears to be simultaneously the owner and manager of the subsidiary. This analysis is based on two arguments. First, the parent company can take advantage of an open range of prerogatives vis a vis its subsidiaries. This is a continnuum of governance between autonomy and control. Secondly, all corporate groups face management dilemma. It is a clue of tensions or contradictions between diversity and unity. We conclude that the corporate group is a flexible structure, an “ambivalent” structure, capable of adjusting its behavior to various conditions. This form has developed new ways to mobilize resources, complete complex tasks... The great empirical significance of this structure may be explained by this potential flexibility.Our analysis is based on eight case studies including French and international groups. We interviewed managers and executives both within parent company and subsidiaries